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Borrowing Market Research
Reasons for Borrowing
Youth in most developing countries borrow money to purchase equipment, inventory, or other inputs for businesses (YouthInvest–Morocco), IGAs, commerce, animal husbandry, or agriculture. Some may borrow for home improvements or personal use (AIM Youth–Mali).
Most youth, especially in-school youth or youth that have dropped out of school for financial reasons, are interested in borrowing for their educations (Savings Innovation and Expansion for Adolescent Girls and Young Women–Mongolia, YouthStart, AIM Youth–Ecuador). Often the reasons for borrowing may not correspond with how a loan is used. For example, in some regions youth may use loans to pay back debts or for marriage or education expenses (YouthInvest–Egypt).
Sources of Borrowing
In most regions youth borrow from friends, family members, and shopkeepers. Some youth are cautious about borrowing from family members because the latter may want to know what the money is for and this could interfere with their desire for financial independence (AIM Youth–Senegal, AIM Youth–Ecuador). But most youth prefer to borrow from these sources, especially to start up a business, as opposed to borrowing from a financial institution, because they have more privacy and understanding if they have difficulty repaying a loan (e.g., no penalties). In addition, youth typically lack the experience, collateral, or guarantee (e.g., assets such as property, vehicles, money, or a family member’s guarantee) necessary to borrow from a financial institution. Alternatively, they may prefer to
start a business from home in order to save money, rather than establish a formal business site (YouthInvest–Egypt, YouthInvest–Morocco). In some regions, youth approached MFIs only after their businesses had been in operation for two years (ESAF–West Bank/Gaza, Down to Business, YouthInvest).
In other regions, older youth (18+ years) may have some experience with student loans, business loans, leasing loans for electronics, or salary loans for home repairs (Savings Innovation and Expansion for Adolescent Girls and Young Women–Mongolia).
Youth who did not have experience borrowing formally from MFIs mentioned the following challenges (YouthInvest–Egypt, YouthInvest–
• Size of loans
• Short grace periods
• High interest rates
• Lack of technical support
• High fees for not paying loan installments on time
• Slow process for disbursing a loan
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